Frozen tax allowances and thresholds
When the current Prime Minister, Rishi Sunak delivered his Budget Statement as Chancellor in 2021, he announced several tax rates that would be frozen until April 2026 – Jeremy Hunt as confirmed that the following tax allowances and thresholds to help recover finances from the furlough scheme will remain in place including some until at least April 2028:
- Stamp Duty Land Tax (SDLT) reduction remains only until March 2025. It would be advisable to accelerate transactions before spring 2025 when the ‘nil-rate-band’ will return to the first £125,000 on a residential property purchase, and also existing SDLT reliefs should be taken into consideration for advantage.
- VAT threshold will maintain at £85,000 to March 2026.
- Personal allowance will remain at £12,570 till April 2028.
- Employers National Insurance (NI) threshold will be frozen until April 2028.
- £50,270 higher rate threshold for income tax until April 2028.
There are some major reductions including the upper rate tax threshold which could impact employed earners positively however changes to tax-free allowances will negatively impact business owners who could be facing effective profit extraction rates of more than 50%.
- The upper rate tax of 45% will kick in on earnings over £125,140 instead of £150,000 from 6 April 2023. Individuals may want to reduce their income to £100,000 if possible, to avoid the 60% marginal rate of tax between £100,000 and £125,140 from the loss of the personal allowances. It might be worth considering that pension contributions would be more worthwhile with this change, as this obtains tax relief at the marginal rate, working well if done under salary sacrifice, as there will also be National Insurance savings.
- Capital Gains Tax (CGT) Annual Exemption (the amount of tax-free gains which an individual can realise each year) will be reduced from £12,300 to £6,000 from 6th April 2023, and then reduced again to £3,000 from 6th April 2024. Whilst this was an unexpected and tough announcement, it is worth noting a positive in that there were no changes to (CGT) rates which will remain at 20% (or 28% for residential property disposals) for higher rate taxpayers.
- Dividends taxed at 0% is reducing from £2,000 for 2022, to £1,000 in 2023 and £500 for 2024
- R&D tax credit relief will be reducing to 10% for lossmaking companies who wish to surrender their losses for a repayable tax credit.
- For small and medium sized enterprises (SMEs), the additional deduction which SMEs receive for their qualifying expenditure will be reduced from 130% to 86%.
A number of tax and threshold increases for businesses and individuals have also been announced including:
- Increase in National Living Wage (NLW) for over 23-year-olds to £10.42 which will be legally enforceable.
- Employers allowance increase to £5,000.
- Plans to increase NIC by 1.25% will remain also 1.25% increase on dividend tax and S455 Tax.
- Plans to increase Corporation Tax to 25% and bring back marginal relief remain.
Company vehicles and mileage
- Changes to the taxation of electric vehicles – from April 2025, electric cars, vans and motorcycles will begin to pay Vehicle Excise Duty (VED), in the same way as petrol and diesel vehicles.
- Company Car Tax (CCT) Rates – the government is setting rates for CCT until April 2028 to provide long term certainty for taxpayers and industry in Autumn Finance Bill 2022.
- First Year Allowance for electric vehicle chargepoints – the government will extend the 100% First Year Allowance for electric vehicle chargepoints to 31 March 2025 for Corporation Tax and 5 April 2025 for Income Tax.
- The advisory fuel rate (the amount that employees can claim as a mileage allowance) for electric company cars will increase from 5p to 8p from 1 December 2022.
If you need bespoke advice as a result of the Chancellor’s Autumn Budget Statement, please do not hesitate to contact Nickie or any member of our team – we’re here to help. Call 0161 905 1801 in Manchester or 01925 830 830 in Warrington, or you can email us via email@example.com.